A note by investment bank Friedman Billings Ramsey on Wednesday revealed that Amazon told merchant partners Tuesday night that it would no longer accept eBay's BillMeLater payment mechanism as of Dec. 31.
BillMeLater works, in effect, like credit for those who don't want to use a credit card for an online payment. When shopping, consumers are asked for minimal information (birthdate, last four social security digits), and, via link-ups with credit bureau networks, purchases are approved or rejected on the spot. A credit-card-like bill is then sent to a customer, who chooses whether to pay in full or over time.
It's been a nifty little business, so nifty in fact that Amazon bought itself an equity stake in the company last year.
But in early October, eBay went for the whole company, agreeing to pay nearly $1 billion to acquire it.
As FBR points out, the move by Amazon to boot BillMeLater from its system was somewhat expected, given the deep access to Amazon's customer data that eBay was allowed through the BillMeLater program. (For the uninitiated, Amazon has grown from its core books and music retailing operation to encroach greatly upon eBay's third-party sell-anything-that-moves turf.)
FBR estimates that Amazon represented about 10% to 15% of BillMeLater's transaction volume.
It would of course be eBay's luck that the company would announce the acquisition of a way to extend even more credit to consumers at the same time the stock market was readying its worst month of 2008, due largely to the pullback in said credit.
But while eBay investors have been legitimately concerned about how successfully BillMeLater would be integrated into the overall company, it's nothing compared with the angst that should be induced by the company's flailing core auctions business, which seems impervious to the company's attempts to revive it.
eBay's stagnation was illustrated all too well by a comScore report on Tuesday that showed online holiday spending fell by 3% (the first time that holiday sales have fallen, by the way, since the firm has been tracking them beginning in 2001).
While holiday site traffic (as measured by unique visitors) rose 7% at Amazon and even 4% at
Web site, eBay's traffic fell 4%.
Amazon's announcement of its "best ever" holiday sales was
but the fact remains that 99.9% of retail companies would take its holiday-quarter performance -- including, no doubt, eBay.
What is more worrisome for eBay shareholders is the increasing realization that the company's woes have as much to do with its own lack of execution as the pullback in the economy.
Amazon, on the other hand, looks like a well-run company that is forced to weather a bad economy and recalcitrant consumers.
For example, check out the differing concerns by Merrill Lynch analyst Jeffrey Lindsay when he just so happened to downgrade both stocks on Dec. 19 after both had rallied off November lows:
Amazon: reduced discretionary spending as unemployment and home foreclosures further erode U.S. consumer confidence; lower-than-expected overseas growth due to worsening conditions in key overseas economies, in particular in Europe.
eBay: slower than expected improvement in active user metrics due to management's recent changes to fees, feedback, shipping charges and transaction guarantees; investors are wary of the company's Bill Me Later unit, seen as "a risky way to stimulate growth by offering credit to consumers."
So, which company do you want to side with when consumers start spending again?
Each stock should have an eventual upside from current levels (Amazon, at $50.89, has lost half its value in 2008, while eBay, at $14.18, is well off its 52-week high of $33.53), and certainly hopeful tech investors could find room for both stocks in their portfolio.
But an increasingly legitimate question appears to be: Why would you bother with eBay?